Mullins L.J. Management and organisational behaviour, Seventh edition

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It is the interaction of people in order to achieve objectives which forms the basis of

an organisation. Some form of structure is needed by which people’s interactions and

efforts are channelled and co-ordinated. To which we can add a fourth factor:

■ management.

Some process of management is required by which the activities of the organisation,

and the efforts of its members, are directed and controlled towards the pursuit of objec-

tives. (See Figure 4.2.)

The actual effectiveness of the organisation will be dependent upon the quality of its

people, its objectives and structure, and the resources available to it. There are two

broad categories of resources:

■ non-human – physical assets, materials and facilities; and

■ human – members’ abilities and influence, and their management.

The interrelationship of people, objectives and structure, together with the efficient use

of available non-human and human resources, will determine the success or failure of

the organisation and the extent of its effectiveness.

Among the variety of different approaches to organisation theory, Watson refers to

one which stresses three common aspects of organisational life:

■ the importance of the creative, critical and situation-defining characteristics of the

individuals who make up the organisation;

■ the varieties of interest and goal among individuals and groups in the organisation,

and the emphasis on conflict and political behaviour; and

■ the interactions between the organisation and the general environment, and recog-

nition that organisations make their environment as much as it makes them.

The formal organisation can be distinguished from the informal organisation (which is

discussed later in this chapter). The difference between the formal and the informal

organisation is a feature of the degree to which they are structured.

CHAPTER 4 THE NATURE OF ORGANISATIONS

115

Figure 4.1 The nature of organisations

THE FORMAL ORGANISATION

A formal organisation has been defined by Schein as:

the planned co-ordination of the activities of a number of people for the achievement of some

common, explicit purpose or goal, through division of labor and function, and through a hierar-

chy of authority and responsibility.

An organisation is a pattern of roles and a blueprint for their co-ordination. The object

of co-ordination is activities, not people. The formal organisation can exist independ-

ently of the membership of particular individuals.

The formal organisation is:

■ deliberately planned and created;

■ concerned with the co-ordination of activities;

■ hierarchically structured with stated objectives; and

■ based on certain principles such as the specification of tasks, and defined relation-

ships of authority and responsibility.

An organisation chart, for example, gives a representation of the formal structure.

Other examples of the formal organisation are rules and regulations, policy manuals,

standing orders and job descriptions. (See Figure 4.9 on page 135.)

The formal organisation can be seen as a coalition of individuals with a number of sub-

coalitions.

Membership of the coalition will be dependent upon the type of

organisation but could include, for example, managers, administrators, workers,

elected representatives, appointed officials, volunteers, shareholders, suppliers, trade

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PART 2 THE ORGANISATIONAL SETTING

Interactions and

efforts of

PEOPLE

in order to achieve

OBJECTIVES

channelled and co-ordinated

through

STRUCTURE

directed and

controlled via

MANAGEMENT

Local

authority

Retail shop

School

Firm of

accountants

PRISON

Nationalised

industry

Bank

Pharmaceutical

company

Government

department

Quarry works

Leisure centre

Hotel

UNIVERSITY

Hospital

Motor car

manufacturer

Airport

Figure 4.2 Common factors in organisations

The

organisation

as a coalition

union officials, leaders of interest groups, customers, clients, patrons, donors, special-

ists, consultants, and representatives of external agencies.

It is difficult to define specific, permanent boundaries for an organisational coali-

tion. However, by focusing on participants over a given period, or participants

concerned with particular decision-making processes, it is possible to identify the main

members of a coalition. Strategies adopted by particular sectional interests or sub-

coalitions will sometimes be part of the formal organisation structure – for instance, in

the pursuit of manifest managerial goals – and will sometimes be related to the infor-

mal structure – for example, heads of department vying with each other for limited

resources, or workers indulging in restrictive practices.

Any organisation can be described, broadly, in terms of an operating component and

an administrative component.

■ The operating component comprises the people who actually undertake the work

of producing the products, or providing the services.

■ The administrative component comprises managers and analysts, and is concerned

with supervision and co-ordination.

Developing this description, we can analyse the work organisation in terms of five

basic components: the operational core; operational support; organisational support;

top management; and middle management. (See Figure 4.3.)

■ The operational core is concerned with direct performance of the technical or pro-

ductive operations and the carrying out of actual task activities of the organisation –

for example, people putting together parts on an assembly line, teaching in a class-

CHAPTER 4 THE NATURE OF ORGANISATIONS

117

BASIC COMPONENTS OF AN ORGANISATION

Figure 4.3 Five basic components of an organisation

room, treating a patient, cooking meals in a hotel, serving in a bank, repairing a

hole in the road.

■ Operational support is concerned indirectly with the technical or productive

process but closely related to the actual flow of operational work – for example,

people working in quality control, work study, progress planning, storekeeping,

works maintenance, technical services.

■ Organisational support is concerned with provision of services for the whole

organisation, including the operational core, but which are usually outside the

actual flow of operational work – for example, people working in personnel, medical

services, canteen, management accounting, office services.

■ Top management is concerned with broad objectives and policy, strategic decisions,

the work of the organisation as a whole and interactions with the external environ-

ment – for example, managing director, governors, management team, chief

executive, board of directors, council members.

■ Middle management is concerned with co-ordination and integration of activities

and providing links with operational support staff and organisational support staff,

and between the operational core and top management.

Organisations can, traditionally, be distinguished in terms of two generic groups:

■ private enterprise organisations; and

■ public sector organisations.

The distinction can be made on the basis of ownership and finance, and the profit

motive. Private enterprise organisations are owned and financed by individuals, partners,

or shareholders in a joint stock company and are accountable to their owners or

members. They vary widely in nature and size, and the type and scope of goods and

services provided. The main aim is of a commercial nature such as profit, return on capi-

tal employed, market standing or sales level.

Public sector organisations are created by government and include, for example,

municipal undertakings and central government departments, which do not have

profit as their goal. Municipal undertakings such as local authorities are ‘owned’ by the

council tax payers and ratepayers and financed by council taxes, rates, government

grants, loans and charges for certain services. Central government departments are

‘state owned’ and financed by funds granted by parliament. Public sector organisations

have political purposes and do not distribute profits. Any surplus of revenue over

expenditure may be reallocated by improved services or reduced charges. The main aim

is a service to and the well-being of the community.

Privatisation

The extent of the state ownership of public sector operations, or of their ‘privatisation’, and

the balance between commercial and social interests, are determined by the government of

the day. In recent years, there has been a vigorous policy of creating freedom from state

control and the transfer of business undertakings to private hands (privatisation).

There are other public sector organisations whose aims involve both a commercial

interest and a service interest. Nationalised industries such as the postal service at

present run as public corporations with autonomy on day-to-day management, a

degree of commercial freedom but with ultimate government control in the national

interest. These public corporations are required to make efficient use of their resources

by ensuring a given minimum rate of return on their investments and to charge prices

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PART 2 THE ORGANISATIONAL SETTING

PRIVATE AND PUBLIC SECTOR ORGANISATIONS

based on the actual cost of supplying goods or services to certain groups of consumers.

However, provision may also be made for certain activities to be undertaken on social

grounds as a service to the community even though these activities might be run at a

financial loss.

There have also been increasing moves to encourage contracting-out of certain local

authority services and putting them to compulsory competitive tender (CCT) and a

greater degree of competition has also been introduced. The exposure to competition

and demands for economical and high quality service have prompted local authorities

to replace administration with business management.

(Management in private and

public sector organisations is discussed in Chapter 6.)

Not-for-profit organisations

The increasing scale of privatisation and the blurring of commercial interests and social

interests have led to an alternative classification of organisations:

■ profit; and those clearly

■ not-for-profit.

Not-for-profit organisations include on the one hand charities, private societies and

most religious organisations, and on the other hand National Health Service hospitals,

universities, prisons, and most government and local authority departments.

However, even in not-for-profit, public sector organisations there has been increased

government pressure to ensure cost-effectiveness, investment by private sector involve-

ment, and efficiency and economy in their operations.

The same blurring of distinctions can also be seen in the case of charities. For example,

Arnott points out that there is very little about the 21st-century charity which is

straightforward and they exist in a highly complex context.

The old distinctions between private, public and not-for-profit sectors have been blurred as char-

ities have taken on an ever-increasing role on the delivery of public services. Tough competition

for funds and growing public scrutiny have led many charities to adopt practices once more com-

monly associated with the commercial sector.

Smith points out that although the private–public sector divide is part of the British

economic and political landscape, the divisions are being broken down and moves

between the two sectors – in both directions – becoming more frequent. Business

people are being introduced to the public sector in an unprecedented way and bringing

their expertise to bear on efficiency across Whitehall.

Rose and Lawton also suggest that the extent of privatisation, the introduction of so-

called business styles of management and the development of an intense competitive

CHAPTER 4 THE NATURE OF ORGANISATIONS

119

I think that we in the business community are sometimes too defensive about privatisation

and forget the effect of state corporatism … The secret of success lies in the way privatisa-

tion has shaken up the corporate culture, and made public servants who had no incentive

to serve their customers into effective managers willing to take risks in order to run their

operations more efficiently or make a profit … The question now is: how can the public

sector and private sector work together for the benefit of both? People in business know

what needs to be done. Focusing on what customers need, improving service and achieving

greater efficiency are the daily bread of every successful business. Let’s call an end to ster-

ile arguments about where the boundary between public and private sectors should be and

concentrate instead of creating a UK plc which is truly competitive.

J. M. Barry Gibson, Group Retail Director, BAA

The

private–public

interface

performance culture have all served to challenge the traditional concept of a public

sector. ‘Privatisation and quasi-privatisation, in the form of contracting out and agency

provision, have meant an increasing interface with non-public-sector organisations.

Part of the rationale for this development is that these organisations have expertise

and competencies which are not as well developed in the public sector. This has facili-

tated the transfer of technologies such as business process re-engineering and the

business excellence model.’

However, in spite of the fashion for applying private-sector techniques in govern-

ment Sir David Wright refers to the difficult issues which remain about the way

government performs and delivers its services. The challenge of management change

has shifted to the public sector with the call for improved delivery of public services. In

the private sector there is the bottom line of follow the money or achieve the sale or

deal. But in government the link between inputs and outcomes remains hard to estab-

lish and the challenge is aggravated by the inability to focus activity on a small

number of immediately realisable targets. As a function of the democratic process, gov-

ernment departments are responsible for a large number of activities and are subject to

political initiatives, both of which can leach valuable resources and affect any assess-

ment of how private-sector techniques can be applied.

Another major distinction is arguably between production and service organisations.

Compared with ‘production’ industries, services tend to display a number of character-

istic features, including the following.

■ The consumer is a participant in the service process. This requires particular atten-

tion to the surroundings and characteristics of the service operations.

■ Services cannot be stored, they are time perishable and if they are not used they are

likely to be wasted. For example, the income lost from a hotel room unsold on one

day is lost forever.

■ Unlike physical products, services are less tangible and more difficult to explain or

communicate. Benefits derived from services tend to be associated with feelings and

emotions.

■ In service operations work activities are people-oriented and the characteristics of

the workforce are particularly important in determining organisational effectiveness.

■ Measurement of output is difficult and there is unlikely to be a single, important cri-

terion by which to measure effective performance.

To what extent then are service industries any different from other industries?

According to Levitt, for example, it is only in a matter of degree.

Purveyors of service, for their part, think that they and their problems are fundamentally different

from other businesses and their problems. They feel that service is people-intensive, while the

rest of the economy is capital-intensive. But these distinctions are largely spurious. There are no

such things as service industries. There are only industries whose service components are

greater or less than those of other industries. Everybody is in service.

Other writers such as Macdonald, however, maintain that service organisations are dif-

ferent. ‘Product quality and service quality are the same inasmuch as they apply to the

results of different activities. There are, however, some fundamental differences in the

organisation of an operation to provide products and services. There are also intrinsic

differences between products and services.’

(See Table 4.1.)

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PART 2 THE ORGANISATIONAL SETTING

PRODUCTION AND SERVICE ORGANISATIONS

Different from

other

industries

In one of the earliest studies of formal organisations, Weber distinguished three types of

authority: traditional, charismatic and legal–rational.

These types of authority are based

on the form of control regarded as legitimate by subordinates, and their acceptance of the

power of superiors. The three types of authority relate to different types of organisations.

■ In traditional organisations, authority is legitimised by custom and a long-

standing belief in the natural right to rule, or is possessed by traditional (‘proper’)

procedure. Examples would be the authority of the Pope, kings or queens or a

paternalistic employer.

■ In charismatic organisations, authority is legitimised by belief in the personal qualities

of the leader; authority is based on the leader’s strength of personality and inspira-

tion. Winston Churchill might be quoted as an example. The practical need for

some routine, for procedures and systems and for economic support means that if

the movement is to continue it must become organised. On the impending demise

of the charismatic leader the movement might collapse unless a ‘legitimate’ heir is

found. This process tends to transform a charismatic organisation into either a tradi-

tional organisation or a bureaucratic organisation.

CHAPTER 4 THE NATURE OF ORGANISATIONS

121

Product Service

The customer receives a tangible product in the The customer receives an intangible service

form of goods which can be seen and touched which may or may not satisfy

The goods remain with the customer Services are consumed at the moment of

delivery

The production and delivery of goods are usually Production, delivery and consumption of

separated services are often at the same time

Few producers deal with customers Most producers deal with customers

The customer is rarely involved with production The customer is often closely involved with

production

Goods can be serviced Services have already been consumed and

cannot be serviced

Goods are subject to liability but the producer has Services which do not meet the requirements

more opportunity to ameliorate the effect on the are difficult to replace – the financial impact is

customer and thus the financial penalty usually total

Goods can be purchased to store in inventory to Services cannot be stored but must still be

satisfy the customer’s needs available on customer demand

Goods can be transported to the point of sale

Some services are transportable (e.g. information

through communication lines) but most require

the transportation of the service provider

The quality of goods is relatively easy for customers The quality of services is more dependent on

to evaluate subjective perception and expectation

Goods are often technically complex – the customer Services appear less complex – the customer

therefore feels more reliant on the producer therefore feels qualified to hassle the producer

Table 4.1 Differences between products and services

(Reproduced with permission from John Macdonald, ‘Service Is Different’, The TQM Magazine, Vol. 6, No. 1, 1994, p. 6.)

TYPES OF AUTHORITY AND ORGANISATIONS

■ In bureaucratic organisations, authority is based on the acceptance of the law of

formal rules and procedures, and on impersonal principles. There is a legal–rational

authority which stems from hierarchical position in the organisation and not from

personality. Examples are the armed forces and the authority of government minis-

ters or a college principal.

The concept of legal–rational authority is of most interest to us because most business

organisations, particularly large-scale ones, tend to be of the bureaucratic type of struc-

ture, although there are variations in degree. Bureaucracy, as applying to certain

structural features of organisation, is the most dominant type of formal organisation.

In order to relate the study of management and organisational behaviour to one partic-

ular type of organisation as distinct from another, it is necessary to group similar types

of organisations together. This enables generalisations to be made on the basis of cer-

tain characteristic features of organisations within a particular grouping. Organisations

can be distinguished by, for example, their nature and type; goods or services provided;

size; aims and objectives; and the people who are employed by or who work in them.

Organisations can, therefore, be classified in a number of ways and different writers

have emphasised particular features of organisations.

A common classification of organisations is by their major purpose. This leads to a dis-

tinction between, for example:

■ business firms (economic organisations);

■ armies, trade unions and police forces (protective organisations);

■ clubs and societies (associative organisations);

■ local authorities and hospitals (public service organisations); and

■ churches (religious organisations).

Further distinctions could be made, for example, into political organisations, educa-

tional organisations, military organisations and voluntary organisations.

Such a distinction tends to lack refinement and not all organisations fit simply into

one classification. Many universities combine research with teaching. Some hospitals

are concerned as much with training and/or research as with treatment of patients.

One could debate the main purpose of a prison: is it, for example, corrective, protec-

tive, penal or educational? The main purpose of a trade union is seen, presumably, as

protection of the interests of its members through their wages and working conditions,

but many trade unions also have strong social, educational and political interests.

Many organisations serve more than one goal; but although they are multi-purpose

organisations it is usually possible to identify one predominant goal (or purpose) by

which the organisation can be classified, however crude this classification may be. It is

of interest, however, to note the comment by Etzioni that:

To the extent that such things can be measured, it appears that many multi-purpose organisations

tend to serve each of their goals separately and all of them together more effectively and efficiently

than single-purpose organisations of the same category.

Blau and Scott propose a classification on the basis of the prime beneficiary.

Four

groups of persons involved in a relationship with any organisation are categorised into:

■ the members, or rank-and-file participants;

■ the owner or managers of the organisation;

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PART 2 THE ORGANISATIONAL SETTING

THE CLASSIFICATION OF ORGANISATIONS

Classification

by major

purpose

PRIME BENEFICIARY OF THE ORGANISATION

■ the clients or, more generally, the ‘public-in-contact’ who are technically ‘outside’

the organisation yet have regular direct contact with it;

■ the public at large – that is, the members of the society in which the organisation

operates.

Organisations are then classified on the basis of who benefits – that is, which of the

four categories is the prime beneficiary of its operations. Four types of organisation are

identified on this basis:

■ Mutual-benefit associations, where the prime beneficiary is the membership, such

as political parties, trade unions and professional associations;

■ Business concerns, where the owners are the prime beneficiaries, such as industrial

and other firms privately owned and operated for profit;

■ Service organisations, where the client group is the main beneficiary, such as hos-

pitals, schools and welfare agencies;

■ Commonweal organisations, where the prime beneficiary is the public-at-large,

such as central government departments, the armed services and the police.

It is emphasised that the prime beneficiary is not necessarily the only beneficiary. Each

of the various groups who make a contribution to an organisation do so only in return

for certain benefits received.

Blau and Scott suggest that special problems are associated with each type of organisation.

■ In mutual-benefit organisations the main problem is that of providing for partici-

pation and control by the membership, and of maintaining internal democracy.

■ In business concerns the central problem is that of maximising operational effi-

ciency in a competitive environment.

■ In service organisations the problem is reconciling conflict between professional

service to clients and administrative procedures.

■ In commonweal organisations the important problem is ensuring democratic pro-

cedures by which they are held accountable to the public for their actions.

It is not easy to find a comprehensive classification into which all organisations can be

simply and satisfactorily categorised; a degree of generalisation, assumption and quali-

fication is required. However, the classification of Blau and Scott provides a useful

typology of organisations. An alternative form of classification is provided by Katz

and Khan.

The Katz and Khan classification is based on ‘genotypic (first-order) factors’ and on

‘second-order factors’.

In terms of the genotypic function, which is the primary activ-

ity of the organisation as a sub-system within the larger society, there are four broad

types of organisations:

■ Productive or economic – concerned with the creation of wealth, the manufacture

of goods, and the provision of services for the public.

■ Maintenance – for example, schools and churches, concerned with the socialisation

of people to fulfil roles in other organisations and in society.

■ Adaptive – for example, research establishments, concerned with the pursuit of

knowledge and the development and testing of theory.

■ Managerial or political – for example, government departments, trade unions and

pressure groups. These are concerned with adjudication, co-ordination and control

of physical and human resources and other sub-systems.

CHAPTER 4 THE NATURE OF ORGANISATIONS

123

Problems

associated

with each type

of organisation

Difficulty in

finding a

comprehensive

classification

PRIMARY ACTIVITY OF THE ORGANISATION

Organisations can then be described in terms of second-order factors. Among other

things these factors relate to structure; the system of intrinsic or extrinsic rewards to

attract and retain members and to achieve satisfactory performance from them; and the

nature of the throughput – the transformation or processing of objects or the moulding

of people as the end product of the organisation. A distinction can be made between

■ object-moulding organisations and

■ people-moulding organisations.

Object-moulding organisations are concerned with physical or material objects as the

nature of work being carried out – for example, a manufacturing plant, a car plant or

an oil company.

People-moulding organisations are concerned with human beings as the basis of

the nature of work being carried out – for example, a school or a leisure centre. In

people-moulding organisations a further distinction can be made between

■ people-processing organisations – for example, an employment agency or a social

security benefit office; and

■ people-changing organisations – for example, a mental hospital or an open prison.

We have seen that organisations differ in many important respects, but they also share

common features. Organisations can be viewed as open systems which take inputs

from the environment (outputs from other systems) and through a series of activities

transform or convert these inputs into outputs (inputs to other systems) to achieve

some objective. (See Figure 4.4.)

In terms of this open systems model the business organisation, for example, takes in

resources such as people, finance, raw materials and information from its environment;

transforms or converts these; and returns them to the environment in various forms of

outputs such as goods produced, services provided, completed processes or procedures

in order to achieve certain goals such as profit, market standing, level of sales or con-

sumer satisfaction.

There are, of course, differences in the activities and methods of operation of the vari-

ous forms of business organisations. There will also be differences between business

organisations of the same type – for example, in relation to their size and scale of activ-

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PART 2 THE ORGANISATIONAL SETTING

Object-moulding

people-moulding

THE ORGANISATION AS AN OPEN SYSTEM

ORGANISATIONAL

GOALS

Inputs to other

systems

ENVIRONMENT

FeedbackMeasure of achievement

INPUTS

AIMS AND

OBJECTIVES

Outputs from

other systems

ENVIRONMENT

OUTPUTS

Feedback

Series of activities

TRANSFORMATION OR

CONVERSION UNIT

Interrelated sub-systems

Figure 4.4 The open systems model of organisations

A common

point of

reference